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In-deep Reforms on Electricity Sector in Albania

WB approves US$150 million project supporting power sector

WB approves US$150 million project supporting power sector reforms and project implementation

Adv. Lorenc Gordani, PhD | October 01, 2014

It's just the last days of September 2014 the notice that the World Bank’s Board of Executive Directors approved US$150 million in IBRD financing for the Power Recovery Project in Albania. The project will support Albania’s power sector reforms, particularly to improve the reliability of the electricity supply and the financial viability of the sector.

Therefore, an obvious core issues became the understanding of the extension of the eminent upcoming Albania’s power sector reforms. The Government's reform efforts for power sector recovery include diversifying generation sources, reducing distribution losses and improving collection, as well as the improving the power market model in line with EU directives. A comprehensive Sector Recovery Plan will be implemented to address the pressing sector issues, especially its fiscal viability.

Indeed the Albania is at a crucial point of development of its energy sector, which has been seriously neglected over the last years. The recent settlement of the investment dispute with CEZ and the selection of Trans Adriatic Pipeline (TAP) as the pipeline opening the Southern Corridor are two important milestones, which could and should turn into real game-changers.

Overview State of Electricity Sector and the Need of Reforms

In regard, a better understand of the deep transformation, important is an assessment of actual framework state. The wholesale market in Albania is monopolized by the state-owned generation company Korporata Elektroenergjitike Shqiptare (KESh). It operates the three state-owned large hydro generation plants and the (non-functional) thermal power plant (TPP) Vlora. KESh also functions as a “wholesale public supplier” under the Power Sector Law and is appointed as supplier of last resort.

The retail market is dominated by Operatori i Shperndarjes se Energjise Elektrike (OSHEE), former CEZ Shperndarje, acting as distribution system operator and public retail supplier. OSHEE supplies electricity to all categories of customers under regulated prices.

Upcoming reforms expected to be introduce by the new Power Sector Law

In legal terms, the Power Sector Law of 2003 is still applicable. Based on a draft provided by the Secretariat, the Ministry in charge of energy currently discusses a new law supposed to transpose the Third Energy Package. Settling the dispute with CEZ cleared away the biggest obstacle to reform in the Albanian electricity sector. However, the largely non-compliant legal framework, the unsustainable volumes of unpaid electricity as well as the critical financial situation of the power companies remain problems of serious concern.

Anymore, bringing the Power Sector Law in line with the acquis, including the Third Package, needs to be achieved urgently. This needs to go hand-in-hand with the design of a new market structure. Among other things, this design must allow for spot-trading (i.e. day-ahead and intra-day markets) and market-based balancing structures. The generation price needs to be deregulated.

Furthermore, OST and OSHEE must be given the possibility to pass on the costs of their losses in an adequate and cost-reflective manner. The steps already taken by the task force, established in order to reduce losses and improve collection rates, need to be monitored and supported by the Ministry and ERE through consistent enforcement including penalties for non-cooperation or pre-paid metering as well as through reprogramming of debts, improved public relations and tariff reviews, as applicable. The restructuring of OSHEE in line with the unbundling requirements is another important step.

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